Dhabriya Polywood Limited Vs DCIT (ITAT Jaipur)
ITAT Jaipur held that disallowance of expenditure by invoking rectification provisions of section 154 of the Income Tax Act is unjustifiable as the same is not mistake apparent on record.
Facts- The assessee is a company engaged in the business of manufacturing of extruded PVC profile section etc. AO completed the assessment u/s 143(3) of the Act at a total income of Rs. 4,67,04,130/- by disallowing expenses of Rs. 1,73,849/-. Disallowance being insignificant, no appeal was filed by the assessee against the order of the AO.
Thereafter, AO invoked the provisions of Section 154 of the Act, disallowed expenditure of Rs. 9,54,000 and computed total income of Rs. 4,76,58,130. Against the order passed by the AO, u/s. 154 of the Act, the assessee company preferred an appeal before the Id. CIT(A) who dismissed the appeal of the assessee company.
Conclusion- Held that whether to disallow or not the expenditure named ROC filing fee amounting to Rs.9,3 8,000/- is outside the purview of Section 154 of the Act as provisions of Section 154 of the Act for rectifying the order can be invoked only for making mistake apparent on record. The invocation of section 154 of the Act as made by the AO in the case of the assessee is not justifiable because Section 154 talks about mistake apparent on record that has to be a mistake which is apparent on the face of the record without involving any debatable question of law. Hence taking into consideration the entire facts of the case, the Bench does not concur with the findings of the ld. CIT(A) and the Ground No. 1 and 2 of the appeal of the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
1. This appeal is filed by the assessee against the order of the ld. CIT(A)-4, Jaipur dated 20-12-2022 for the assessment year 2015-16 wherein the assessee has raised the following grounds of appeal.
“1. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirming the action of ld. AO, in passing the rectification order u/s 154 of the Income Tax Act, 1961on debatable issues which are outside the purview of section 154. The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said order passed by ld. CIT(A).
2. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in, confirming the action of ld. AO, in disallowing the ROC filing fee of Rs. 9,38,000, treating the same as apparent error in original order formed u/s 143(3). The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 9,3 8,000 made by ld. AO and confirmed by ld. CIT(A).
3. In the facts and circumstances of the case and in law, ld. CIT(A) has erred in confirming the action of ld. AO in disallowing the Trade Mark fee of Rs. 16,000 treating the same as apparent error in original order. The Action of the ld. CIT(A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 16,000 made by ld. AO and confirmed by ld. CIT(A).
2. During the course of hearing, the ld. AR of the assessee has not pressed the ground No. 3 for which the DR has no objection. Hence, the same is dismissed being not pressed.
3.1. Apropos Ground No. 1 & 2 of the assessee, brief facts of the case are that the assessee is a company engaged in the business of manufacturing of extruded PVC profile section etc. The assessee company filed its return of income on 30.10.2015 for the assessment year 2015-16 declaring a total income at Rs. 4,65,30,280/-. The AO completed the assessment u/s 143(3) of the Act vide order dated 21.07.2017 at a total income of Rs. 4,67,04,130/- by disallowing expenses of Rs. 1,73,849/-.Disallowance being insignificant, no appeal was filed by the assessee against the order of the AO. Thereafter, AO invoked the provisions of Section 154 of the Act, disallowed expenditure of Rs. 9,54,000 and computed total income of Rs. 4,76,58,130, vide order dated 08.04.2021. Against the order passed by the AO, under Section 154 of the Act, the assessee company preferred an appeal before the Id. CIT(A) who dismissed the appeal of the assessee company by observing as under:-
‘’4.3 I have considered the facts of the case and written submissions of the appellant as against the observations/ findings of the AO in the assessment order for the year under consideration. The contentions/ submissions of the appellant are being discussed and decided as under:-
‘’(i) Mistake is an ordinary word but in taxation law, it has a special significance. It is not an arithmetical or clerical error alone that comes with its purview. It comprehends errors which after a judicious probe into the record from which it is supposed to emanate are discerned. The word ‘’mistake’’ is inherently indefinite in scope. It is mostly subjective mistake, capable of being rectified under sections 154 and is not confined to clerical or arithmetical mistakes. It is a settled position of law that any expenditure incurred which relate to increase in authorized capital are not allowable as revenue expenditure and I am of the considered view that the AO has rightly allowed the same under the provisions of Section 154 of the Act. Accordingly, the addition of Rs.954,000/- is confirmed and Ground of Appeal No. 1 to 4 are treated as dismissed.’’
3.2 Being aggrieved by the order of the ld. CIT(A), the assessee carried the matter before the ITAT with the prayer that the ld. CIT(A) has erred in confirming the action of the AO in invoking the provisions of Section 154 of the Act and thus the present proceedings initiated u/s 154 of the Act should be quashed. To this effect, the ld. AR of the assessee filed the following written submission.
‘’GROUND NO. 1,2: INVOKING SECTION 154 AND DISALLOWANCE OF EXPENSES SUBMISSIONS
1. ASSESSING OFFICER: Post completing the assessment u/s 143(3) vide orderdated 21.07.2017, ld. AO invoked section 154 and disallowed following expenses, observing that these expenses are of capital in nature and being mistake apparent on record, were required to be disallowed:
